For the market, an unpleasant, but not unexpected, September and October

We just closed the books on a tough two months for the market, with the S&P 500 Index (S&P 500) off 3.8% in September and off 2.8% in October. If we consider a very strong July and August for equities, the COVID-19 pandemic, and the uncertainty surrounding fiscal support for the economy, the pullback isn’t surprising. Beyond that, we were in the seasonally weak period for the market (remember, “Sell in May and go away”) while history tells us September and October are rough months for stocks in an election year, which we ascribe to the uncertainty the upcoming vote causes on Wall Street. Now, it’s important to focus on what comes next for US equities. Well, we are in the seasonally strong period for the market, and equities have historically rallied nicely in November and December in election years. As the economy continues to recover, monetary policy is very supportive of risk assets, the recent pullback in the market has improved valuation, and despite a meaningful jump in US COVID-19 cases, another broad lockdown isn’t being considered. While any meaningful delay in calling the Presidential Election would likely weigh on equities, we think the market is biased higher into year-end. Finally, in a reversal of the past several weeks, the S&P 500 is now off -0.75% since August 3, indicating Joe Biden will win the Presidency.

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Tagged: weekly wire, market perspectives, Tim Holland,  S&P 500 Index, Presidential election, equities